Currency rhetoric heats up with New Zealand joining warnings

The Bank of Japan last month adopted a 2% inflation target without a deadline and said it would start open-ended asset purchases next year. BOJ board member Yoshihisa Morimoto said today the central bank will implement unprecedented monetary stimulus this year.

“Yen liquidity is forcing other central banks into easier monetary conditions,” said Hans Redeker, head of global foreign-exchange strategy at Morgan Stanley in London. “Wheeler definitely has to consider the implications of currency strength.”

Other policy makers in Asia have also vowed to curb currency swings in the past month as inflows from developed markets fueled the risk of asset bubbles and decreased export competitiveness.

Speculative trading in the currency market “should be curbed in any means,” Bank of Korea Governor Kim Choong Soo said at a meeting with economists in Seoul today. President Elect Park Geun Hye said South Korea will act “pre-emptively and effectively” on currencies to protect its companies, according to an e-mailed statement today from her spokesman.

Philippine central bank Governor Amando Tetangco said in a Feb. 15 speech his country will consider more “macroprudential measures, as appropriate” to ensure the exchange rate remains aligned with fundamentals.

‘Irregular Factors’

Taiwan’s central bank said it will intervene in the market if “irregular factors,” such as large fund flows, cause excessive volatility, according to a statement on its website on Jan. 29. The central bank has sold the local currency on most days in the past 10 months, according to traders who asked not to be identified.

Bank Indonesia has repeatedly pledged its readiness to intervene to keep the rupiah from weakening too rapidly. Foreign-currency reserves dropped to $108.8 billion in January, least since July, from $112.8 billion in December, suggesting the central bank intervened.

“Bank Indonesia continues to guard the rupiah’s exchange- rate stability according to economic fundamentals,” it said in a statement on Feb. 2.

‘Too Strong’

The central bank of Norway said it is ready to lower interest rates to counter the krone’s strength if it interferes with the inflation target. Norway’s currency rose 6.7% in the past six months against the dollar, the third-best performer of 16 major currencies.

“If it gets too strong over time, leading to inflation that’s too low, we will act,” Norges Bank Governor Oeystein Olsen said in Oslo on Feb. 14. “I have followed the krone development, and we always do.”

While the Swiss franc weakened against the euro this year after the region’s debt crisis eased, the central bank said the currency remains at risk of strengthening as European leaders struggle to restore confidence and it will continue to enforce a cap that it imposed on the exchange rate at 1.20 francs per euro.

“We’re welcoming the slight depreciation of the franc against the euro since the beginning of this year,” central bank President Thomas Jordan said in Zurich yesterday. “As long as the fiscal and structural problems of the euro region are unresolved, the threat of sudden, returning upward pressure on the franc isn’t over.”